Developing Asia to post robust growth in 2013-2014

Rising private consumption and stronger intra-regional trade will spur the growth of developing Asia in 2013 and 2014, as economic activity in the U.S. and Europe remains in the doldrums, the Asian Development Bank (ADB) says in a new report.

“The rebound in People’s Republic of China (PRC) and solid momentum in Southeast Asia are lifting the region’s pace after the softer performance of 2012,” said ADB chief economist Changyong Rhee. “Domestic spending, in particular consumption, is the main driver of the recovery, and is a welcome shift from the reliance on the markets of advanced economies.”

But the report warns that political risks linked to the U.S. debt ceiling, the euro zone crisis, and border disputes in Asia can derail the outlook. The region’s favorable fiscal position should be guarded with improved revenue efficiency and better governance, and by addressing other longer-term issues, it added.

By sub-region, East Asia will have the highest projected growth of 7.1 percent in both 2013 and 2014. China—the world’s second largest economy—is forecast to expand 8.2 percent in 2013 on the back of rising domestic demand and improved exports, with spillover benefits for neighboring economies. Growth will edge back slightly to 8 percent in 2014 as the government moves to cool pressure on the environment and address income inequality.

South Asia will see a turnaround after two years of economic softening, with growth estimated at 5.7 percent in 2013 and 6.2 percent in 2014. India will lead the upturn, with projected growth of 6 percent and 6.5 percent, but the world’s second most populous country is still struggling with structural and policy issues inhibiting investment.

Southeast Asia was the only sub-region to see growth accelerate year-on-year in 2012, led by a recovery in Thailand and strong public spending in the Philippines. This buoyancy is set to continue on the back of robust consumption, rising investment and increased intra-regional trade, with GDP growth projected at 5.4 percent in 2013 and 5.7 percent in 2014. The implementation of the ASEAN Economic Community in 2015 will enlarge trade volumes within this bloc and help to diversify export markets, the report says.

Higher public spending, particularly in Kazakhstan and Azerbaijan, will boost Central Asia, with projected growth of 5.5 percent in 2013 and 6 percent in 2014. Meanwhile, growth in the Pacific is seen to cool slightly to 5.2 percent in 2013 with the completion of some major public construction projects before bouncing back to 5.5 percent in 2014 as new public construction activity gets under way and tourist arrivals pick up.